With the overall divorce rate in New York State being approximately 50%, it is certainly reasonable to consider how to “protect” gifts or inheritances to married children. With that thought in mind, some basis concepts will be explained here.

In the event of a divorce, marital property is distributed in an equitable, or fair fashion, while generally speaking, separate property is not subject to distribution. Separate property is defined as property that is owned prior to marriage, acquired after the date of marriage by gift, inheritance, or a personal injury award or acquired during the marriage in exchange for other separate property. However, the actions of the recipient of a gift or inheritance sometimes cause that property to be “transmutated” or converted, from separate to marital property.

To preserve the status of the gift or inheritance as separate property, the single most important requirement is that the property remain in the sole name of the recipient. The best way to do that, is for the recipient to open up a new bank account, so as to create a clear “paper trail” at a later time. In that regard, it is suggested that the recipient of separate property maintain comprehensive records of statements relative to such an account. What should not be done, is for the recipient to deposit a gift or inheritance into a joint account, such an action would cause the property to immediately lose its status as separate property.

Even if the gift or inheritance is deposited into an account in the sole name of one party, it is extremely important that the recipient does not then deposit earnings into that account. Such an action would then be co-mingling marital income with separate property. If such an action occurs, and since money is fungible, there is no way to then clearly delineate what money is separate and what money is marital, especially if there are multiple deposits and withdrawals.

So, in conclusion, the simple and effective way to protect a gift or inheritance is for the recipient to open up a new account in his or her name solely, so as not to in any way be designated as a joint account. Thereafter, no other monies should be deposited into that account, except for other funds that are clearly and undisputedly separate property. If such a path is followed, the funds would be properly preserved by the recipient and not subject to distribution in any matrimonial proceeding.